What to acquire and how to learn: Lessons from an ...

What to acquire and how to learn: Lessons from an M&A failure in the shipbuilding industry Gahye Cho1, Seongwuk Moon2 and Joon Mo Ahn3 1

[email protected] [email protected] (co-corresponding author) 3 [email protected] (co-corresponding author) Graduate School of Management of Technology, Sogang University, 35 Baekbeom-ro, Mapo-gu, Seoul 04107, Korea 2

Merger and Acquisition (M&A) is an effective way to absorb new external knowledge. However, as many practical cases suggest, not all M&A deals create positive values. Because M&A is a progressive adaptation that integrates two organizations, identifying current heterogeneities and establishing a relevant learning strategy to address these differences is vital to M&A success. Based on the understanding that knowledge characteristics originate from products that firms make and the organizational structures reflecting the characteristics of knowledge that firms manage, this paper investigates an unsuccessful M&A deal in the shipyard industry between STX and Aker Yards and proposes an expandable theoretical framework unpacking the success and failure factors of M&A. The results suggest the importance of learning strategies that can efficiently accelerate smooth integration and adaptation. The paper also provides practical implications, particularly for crossborder M&A deals.

1. Introduction As the speed of technology development accelerates and the complexity of knowledge increases, firms have paid a great deal of attention to various strategic choices that can reduce the burden of innovation (Chesbrough, 2003). Merger and acquisition (M&A) is one of those approaches. M&A enables firms both to acquire new technological capability (Ranft and Lord, 2002) and to reduce time and costs for internal R&D (Cassiman et al., 2005, Bower, 2001). However, the literature has revealed that M&A can be a double-edged sword because of the high uncertainty and challenges embedded in its implementation. As noted by Cartwright and Schoenberg (2006), in practice, many M&A cases have failed to create positive values and establish the necessary capability. This may suggest the importance of an appropriate learning mechanism for coping with challenges in M&A implementation. M&A is a process in which two organizations are integrated; therefore, it is critical to manage differences. Put differently, the success of M&A depends on its effective, progressive adaptation, which will be strongly influenced by the establishment of a relevant learning strategy. Acquiring firms must first identify key heterogeneities embedded in their products/services and organization structure and then establish an optimized learning approach that addresses the heterogeneity gaps that have been identified between acquiring and acquired firms.

To investigate this issue, this paper explores a failed M&A case in the shipbuilding industry from the perspective of knowledge management and dynamic capability. By analyzing an international M&A deal between STX in Korea and Aker Yards in Finland, we proposed a theoretical framework explaining how an underdeveloped learning strategy leads to the failure of knowledge integration. To expand the generalizability of the proposed framework, based on Minshall (1997) and Minshall and Garnsey (1999), we applied the framework to a successful international M&A case between MELCO in Japan and Apricot in the UK. This case expansion enhances the robustness of the proposed framework and provides us with both an in-depth understanding and practical implications.

2. Theoretical background 2. 1. Previous M&A research There are numerous benefits of M&A, such as achieving economies of scale, market expansion, and technological innovation. However, it is difficult to deny M&A’s high

Table 1. Previous M&A research stream adopted and modified from (Haspeslagh and Jemison, 1991)

failure rate. M&A is a complex process that integrates

reaction (Ahammad et al., 2016), prior M&A experience

The existing research stream (Haspeslagh and Jemison, 1991) Capital market school focus

-Shareholder wealth gains -M&A’s impact on stock-market fluctuation

Representative Di Giovanni (2005) study Andre et al. (2004) Shleifer and Vishny (2003)

Strategic school

Organizational behavior school -Pre-merger phase -Pre- and post-merger -Strategic relatedness phase for creating synergies -At both the individual -At firm level and the organizational level -Human side in organizational implementation

Makri et al. (2010) Tsai (2000)

different types of knowledge and organizations, so it involves a high level of uncertainty and ambiguity in its implementation. In this vein, various M&A studies have attempted to reveal the ambiguous and complicated characteristics of M&A and its implementation mechanism. For example, Haspeslagh and Jemison (1991) attempted to classify key factors of M&A in several disciplines. According to them, M&A studies can be categorized as four streams—the capital market school, the strategic school, the organizational behavior school and the process perspective, as shown in Table 1. First, the capital market school has primarily attempted to investigate M&A based on the financial economic perspective. This strand of research has focused on the impact of M&A on stock price fluctuation and wealth gains for shareholders of both acquiring firms and acquired firms (Di Giovanni, 2005, Andre et al., 2004, Shleifer and Vishny, 2003). Second, the strategic school has considered strategic objectives and strongly emphasized the effect of strategic relatedness between an acquired firm and an acquiring firm on acquisition performance (Haspeslagh and Jemison, 1991). One of the main issues in this stream is synergy creation by absorbing and/or combining complementary resources and capabilities of the two firms, which is in line with the resource-based view (Bauer and Matzler, 2014, Dyer et al., 2003, Tsai, 2000, Larsson and Finkelstein, 1999). Thus, many studies have focused on the relatedness of knowledge to generate new knowledge through M&A (Makri et al., 2010, Cassiman et al., 2005), but some scholars have argued that this view overlooks organizational factors that influence the integration process while focusing too much on the strategic relatedness that motivates M&A initiation (Jemison and Sitkin, 1986, Greenwood et al., 1994). Third, the organizational behavior schools have analyzed human factors of organization to conduct an indepth exploration of the integration process (Birkinshaw et al., 2000). Researchers in this strand have investigated cultural distance (Barkema et al., 1996), employee

Birkinshaw et al. (2000) Weber (1996)

Process perspective -Pre- and post-merger phase -Fostering M&A performance by managing the implementation process -Transferring and sharing the process of resources and capabilities Ranft and Lord (2002) Greenwood et al. (1994) Jemison and Sitkin (1986)

Integrative perspective M&A as complex and contextual activities

Bauer and Matzler (2014) Bannert and Tschirky (2004) Larsson and Finkelstein (1999)

(King et al., 2004, Very and Schweiger, 2001), and the M&A operation function (Trichterborn et al., 2015) as key factors that influence value creation in M&A. This perspective was particularly focused on contextual factors at the micro level and therefore devoted a great deal of attention to individual and organizational interactions and reactions. Fourth, the process perspective has argued the decisive importance of the integration process itself (Greenwood et al., 1994, Jemison and Sitkin, 1986). This perspective has investigated the management of the integration process, including autonomy, integration speed, communication and retention in the sense that integration management can be influenced by firms’ path-dependency behaviors, such as organizational routines (Jemison and Sitkin, 1986, Ranft and Lord, 2002, Homburg and Bucerius, 2006). Resource allocation and knowledge transfer have also been regarded as important M&A integration processes (Ranft and Lord, 2002, Puranam et al., 2009, Bresman et al., 1999). Although these perspectives may enrich understandings of M&A, the use of fragmented perspectives may limit our understandings and fail to capture multifaceted M&A in which complexity and casual ambiguity are embedded. Although many factors and plausible mechanisms of M&A have been revealed by each research strand, complicated contextual meanings and in-depth interpretation might not be adequately achieved by a single perspective. Therefore, it is necessary to both integrate essential elements into each school and to suggest an integrative research model that reflects a complicated real case (Bauer and Matzler, 2014, Schweizer, 2005, Bannert and Tschirky, 2004, Larsson and Finkelstein, 1999). In that respect, this paper adopts an integrative approach that embraces strategic, organizational and process factors to achieve a holistic understanding of M&A success or failure. Based on a strategic perspective, this paper analyzes the motivations of and gaps in M&A, and using other perspectives, it addresses those gaps by attempting to investigate why firms succeed or fail.

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2.2. The pre-merger phase: knowledge and organization relatedness In many cases, M&A is used to gain new capability. This issue of whether this goal can be achieved must be clearly investigated during the pre-merger phase. In this section, we consider knowledge relatedness as a key factor motivating an M&A deal and explore how knowledge affects the gaps between acquiring and acquired firms.

Knowledge relatedness If M&A is intended to gain new resources and thus to establish a new capability, a key strategic factor that must be considered is knowledge. The literature has shown that the high complementarity and similarity of knowledge are potential indicators that influence the motivation for pursuing M&A. As shown in Figure 1, knowledge complementarity and similarity compose a two-by-two matrix. First, when knowledge complementarity is high and knowledge is not different, the feasibility of M&A will be high. A vertical integration alongside the same value chain can be an example of this type of M&A. Second, M&A might be conducted when knowledge complementary is not high, but knowledge between firms is similar. This case may not be attractive for M&A deals, but sometimes deals can occur to achieve economies of scale. Third, when neither knowledge complementary nor similarity are high, M&A will not be feasible from a strategic perspective because its benefits pale compared to its costs, such as resource reallocation. Fourth, most M&A cases will occur when knowledge complementary is high but similarity is low. In this case, although M&A can be a very attractive solution that establishes dynamic capability, it will be critical to address the heterogeneity of knowledge (see the shadowed quadrant 2 in Figure 1).

Knowledge Similarity High

Low

High

Vertical integration

Consider how to address heterogeneity

Low

Economy of scale

Abandon the M&A deal

Knowledge Complementarity

Figure 1. A matrix of decision on M&A deal

Although the positive impact of high complementarity on value creation of M&A has been consistently supported, the positive impact of similarity has not been intensively explored (Bauer and Matzler, 2014). However, as shown in Figure 1, knowledge similarity plays an important role in deciding the purpose and level of challenges of M&A. Thus, if a target firm’s (i.e., an acquired firm’s) knowledge can create new value for the acquiring firm, the acquiring firm must identify knowledge similarity to establish an appropriate

knowledge learning strategy. This identification of knowledge is a fundamental process of understanding the target firm’s overall activity and competitive advantage. However, if a target firm’s knowledge is tacit, it may not be easy to achieve knowledge complementarity. Knowledge can be categorized to tacit and explicit articulability from the epistemological perspective (Polanyi, 1962). Lam (2000) suggested that these two knowledge types are distinguished in three aspects: codifiability, acquisition and accumulation, and aggregation. Tacit knowledge is manifested implicitly and cannot be fully codified. Knowledge is accumulated in an individual’s skill and organizational routines, and is acquired only from practical experience. Aggregation of tacit knowledge in a single location is difficult because of its personal and contextual nature (Lam, 2000). In contrast, explicit knowledge is articulated in objective forms, such as patents, blueprints, and specific documents. Thus, it can be acquired and accumulated by formal one-way learning, and be stored in a place as a physical form, such as documentation (Lam, 2000). Thus, if knowledge similarity is low in terms of the degree of tacitness, the method of acquiring, accumulating and aggregating the target firm’s knowledge must be established in light of this reality.

Product and Organization relatedness Because knowledge is intangible, it is not easy to take a direct measurement of a firm’s knowledge. Accordingly, indirect measurement has been employed to identify knowledge characteristics. A firm’s knowledge resides in its product and is embedded in an organization. Thus, knowledge similarity can be indirectly measured by analyzing a firm’s product and organizational structure (Teece, 2008, Tanriverdi and Venkatraman, 2005). First, knowledge resides in a firm’s products in which a firm’s activities are crystallized. Put differently, a product process reflects knowledge characteristics. For example, if a firm’s production process is fragmented, knowledge might be substantially distributed to each production segment. Second, a firm builds a specific organizational structure that reflects its knowledge characteristics (Brusoni et al., 2001, Lam, 2000). Typically, organizational structure reflects a firm’s internal decision-making process. Although there are many taxonomies, organizational structure can be categorized into a centralized and a decentralized organization according to the degree of decision-making processes, concentration and empowerment (Lam, 2000). A formal structure may be established in organizations that primarily use explicit knowledge, in the sense that this knowledge highly standardizes tasks and work roles. In contrast, decentralized structure might be built into an organization using tacit knowledge, which utilizes flexible coordination mechanisms. This is because tacit knowledge is dispersed and embedded in personal skills and organization routines, which are difficult to standardize (Lam, 2000). Some M&A studies have noted that the explicit link between knowledge and organizational structures has been neglected in the M&A planning stage, despite the significant impact of organizational factors on the

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operations of the firms involved (Jemison and Sitkin, 1986, Greenwood et al., 1994). In the pre-merger phase, firms have carefully considered knowledge complementarity, but paid less attention to product and organization relatedness, which is closely related to knowledge characteristics. However, because the key issue in pre-merger phase is the identification of knowledge similarity, overlooking product/organizational relatedness can mislead firms when they are transferring necessary knowledge during the integration process.

2.3. The post-merger learning process If knowledge relatedness is adequately identified by investigating product and organization structure relatedness during the pre-merger phase, an appropriate learning strategy has to be established to address this identified gap (Bannert and Tschirky, 2004). The following factors should be considered in the postmerger learning process.

Integration speed Integration speed may have an impact on post-M&A performance (Homburg and Bucerius, 2006, Angwin, 2004, Bauer and Matzler, 2014). There are no consistent findings about whether its impact on M&A is positive or negative. Angwin (2001) proposed the importance of speedy integration impact to successful M&A because it allows firms to reduce uncertainty of the external environment, uncertainty among employees, and time cost in a suboptimal condition. Homburg and Bucerius (2006) suggested that speedy integration may be a factor in the success of M&A performance that can be moderated by a firm’s internal and external relatedness. However, Bauer and Matzler (2014) showed that integration speed does not support the beneficial effect of rapid integration. Some studies have also emphasized the harmful effect of a rapid integration process, arguing that successful integration requires relatively slow and careful attention (Ranft and Lord, 2002, Birkinshaw et al., 2000). Building mutual trust as an adaptation process during integration takes a considerable amount of time, but it prevents the employee resistance that results from overly rapid integration.

Target contents The first thing to be recognized is “what to learn”. According to the goal of an M&A deal, the target contents that must be achieved through an M&A should be clearly identified. An M&A deal may aim to absorb specific technology, intangible skills or even a brand name, and the target contents will influence the transferability of target knowledge, potentially affecting the cost and time associated with the learning process.

Prior knowledge Prior knowledge is required to increase learning performance. As explained in the well-known concept of “absorptive capacity,” proposed by Cohen and Levinthal (1990), prior related knowledge is important to assimilating and exploiting external knowledge. In cross-border M&A, prior knowledge is more demanding. First, product-related experience may influence combinative capabilities, which synthesize and apply current and acquired technology, to create value from innovation (Kogut and Zander, 1992). Product-related experience can accumulated through learning methods such as technical training and internal R&D (Cohen and Levinthal, 1990). Second, M&A experience develops M&A capabilities and enables a firm to coordinate its overall M&A process (Trichterborn et al., 2015, Kale and Singh, 2007). Third, learning from previous foreign entry experience is important for lowering cultural barriers and improving the performance of cross-border M&As (Very and Schweiger, 2001, Barkema et al., 1996). Accumulated knowledge about national culture, the local market structure, and government policy may improve the possibility of successful cross-border M&A by enhancing understanding of sociocultural factors.

Communication Communication is regarded as a crucial facilitator of organizational learning in the M&A integration process (Bresman et al., 1999, Lam, 1997, Ranft and Lord, 2002). The related firm’s knowledge is allocated through communication in the &A integration process. Organizational knowledge is transferred, shared, and created by intensive, extensive communication between individuals. Thus, communication method, frequency, and strength mediate knowledge transferability (Bresman et al., 1999). The higher the tacitness of knowledge, the more frequent, intensive and extensive the communication required. Explicit knowledge that is easily codifiable in documents and drawings can be communicated by exchanges with those documents and drawings. However, tacit knowledge such as individual skills and organizational routines can be shared through a frequent face-to-face method, such as meeting and visiting, followed by “learning by doing,” which means engaging in common work.

Socio-cultural differences In cross-border M&A, national cultural differences may have a negative impact on M&A performance because of their high levels of uncertainty (Barkema et al., 1996, Angwin, 2001). In particular, geographical distance may interfere with interactive and frequent communication because of the low likelihood of a face-to-face meeting, foreign language barriers and time differences (Risberg, 2001). Less intensive communication makes mutual understanding more difficult and learning performance lower. Additionally, national cultural differences may prompt cultural resistance based on regionalism. Aggressive strategic movement by a foreign acquiring firm may occasion the resistance of suppliers and interested industrial parties in the local domestic market.

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They may recognize the acquiring firm as a potentially threatening competitor and attempt to interfere with the firm’s business by using an institutional structure (i.e., the regulatory structure) that favors local businesses (Shimizu et al., 2004). Thus, overcoming cultural differences has been emphasized as a crucial factor for creating value during the post-integration process (Teerikangas and Very, 2006, Stahl and Voigt, 2008).

2.4. Theoretical framework A theoretical framework is proposed, as shown in Figure 2. The framework is begins with the heterogeneity of firms’ knowledge, which has been developed to obtain a competitive advantage in the existing market. We concentrate how to address heterogeneity in the integration process. Thus, M&A deals are analyzed in two steps: the pre-merger phase and the post-merger phase. In the pre-merger phase, it is necessary for firms to identify the differences in dominant knowledge

Figure 2. An integrative framework for analyzing an M&A

between the acquiring firm and the acquired firm. The firms’ existing product and organizational structure may be considered as knowledge repositories to define each firm’s dominant knowledge. To create positive values in the integration process, the identified differences must be reflected the firms’ learning strategy. We identify six factors for learning strategy, including target contents, prior experience, approach, integration speed, communication and sociocultural differences. Those factors establish interactive relations in a series of processes. A firm chooses an appropriate learning approach considering both target contents and its prior experience. Next, integration speed is decided according to that approach, and communication is conducted through an M&A process. These five internal factors are reflected in a learning team (i.e., the M&A team) that implements a learning process. Finally, sociocultural differences, such as geographical distance and social institutional resistance (e.g., regulation), can negatively affect an M&A process.

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3. Research methodology 3.1. A case study This paper explores a failed M&A case to explain why and how an M&A fails to create value. For the case study, the M&A deal between STX Shipbuilding in Korea and Aker Yards in Europe was chosen. STX aimed to obtain a new core competency—cruise ship building—but failed to obtain new knowledge, resulting in the sale of the acquired firm. A case study is implemented to determine why this decision was made and how its consequences were realized (Shramm, 1971). This study explores “why firms fail to create knowledge from M&A” and observe and analyze “how the firms implement their strategy,” Furthermore, we linked theories to practices during the process, deducing the reason for the failure and enhancing our existing theories. Yin (2009) suggested that a single case study can be justified when the case is differentiated from other cases to verify an existing theory in a unique or extreme case. Thus, this single case study can be justified because it both addresses a unique failure case and enhances existing theories. Although this paper is a single case study, the case provides rich data based on a five-year longitudinal observation by the authors. Data were collected from multiple sources, including in-depth interviews, written documents, and participant observation. We collected secondary data about the M&A process from STX’s internal report, its annual reports and press releases, and news articles involving CEO interviews and related business topics. To obtain more in-depth industry data, EC investigation reports and industry trend reports were also consulted. Furthermore, the case was observed for approximately five years of the integration process, from 2008 to 2012. After that period, several interviews with related managers was conducted. Furthermore, to overcome the possible shortcomings of a single case study, we developed a framework based on the case and attempted to examine the applicability of the framework by applying it to a similar international M&A case study conducted by Minshall (1997) and Minshall and Garnsey (1999).

shipbuilders started to chase Korean firms. Chinese firms started to chase the lower value-added business segment, such as tankers, bulk carriers, and containers, which are known as “commercial ships” or standard ships, while Korea’s biggest shipbuilders struggled to reorganize their business portfolios to focus on the high value-added business segment. The main players in Korea’s shipbuilding industry intended to build high-class passenger ships offshore, including cruise vessels, for high value-added business areas exclusively dominated by European shipbuilders (see Figure 3). For the sustainable growth of Korean shipbuilders, the shift to the high value-added segment was necessary. Korean shipbuilders’ stagnancy in the low value-added business area will result in excessive competition, decreasing both ship prices and profits.

Value added structure in the shipbuilding industry The market share by volume of Korea’s shipbuilding industry was once more than 40% higher than in other areas, such as the EU, China, and Japan, which are noted for their shipbuilding industry. Korea’s value portion of market share has shrunk to 30%. In contrast, the European shipbuilding industry has substantially increased its value over volume (see Figure 4). The degree of value added depends on ship type, based on its technological complexity. It is measured by how much value is created compared to the input amount of steel. Container ships create two times the value, Floating Production Storage and Offloading (FPSO) creates five times the value sand cruise vessels create ten times the value than Very Large Crude Oil Carriers (VLCC, rating approx. 300,000 DWT).

3.2. The case description Attempt to reshape the industrial structure to high value added In 2007, the Korean shipbuilding industry was ranked first worldwide, and Korean seven shipbuilders were included in a list of the world’s top 10 shipbuilders. The volume of Korea’s shipbuilding industry has radically expanded since 2000, with Korean shipbuilders reporting a record number of new orders in 2007. Despite the shipbuilding market’s boom, however, severe competition was predicted. Ominous indicators such as decreased demand and decreased ship prices appeared and Chinese

Figure 3. Shipbuilding market structure by ship type and country (Chen et al., 2010)

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CEO’s strong willingness to technology inbound

Figure 4. The world’s shipbuilding market share by country: Volume (CGT, Compensated Gross Tonnage) vs. Value (USD) (Chen et al., 2010)

M&A motivation STX Shipbuilding was a young and rising firm, which was established when STX Corporation acquired the midsized Daedong Shipbuilding company (established in 1967) in 2001. STX Shipbuilding had shown rapid growth and became one of the main players as the seventh-largest shipbuilder in the world in 2007 (2006 revenue was 1.46 billion USD1) by developing a standard ship platform of a tanker, a bulk carrier, and a container. However, STX had resource constraints for a high value-added business formation as a latecomer in responding to the threat from industrial change compared to top three shipbuilders (Hyundai Heavy Industries (HHI), Samsung Heavy Industries (SHI) and Daewoo Shipbuilding & Marine Engineering (DSME)). These three firms had made efforts since 2000 to accumulate R&D capability for the new high value-added products. In March 2007, the Aker group announced that it would sell Aker Yards’ share, which is one of its affiliates and Europe’s largest shipbuilder in advanced ship market segments, such as cruise ships and ferries, offshores and specialized vessels. The Aker Yards, headquartered in Oslo, Norway, had 17 shipyards across Europe, recording 3.1 billion USD 2 as operating revenue in 2006 3, and its cruise ships and ferries segment accounted for 44% of its revenue. Aker Yards were very reliable, innovative cruise shipyards. There are four shipyards building large cruise ships; the Aker Yards in Turku, Finland, the French Chantiers de l'Atlantique (CAT), the Italian Fincantieri and the German Meyer Werft. The Finnish and French shipyards were affiliates of Aker Yards. Aker Yards acquired a 75% share of the CAT from Alstom in March 2006 4 . Aker was ranked the second-largest cruise shipbuilder in the world, with two main cruise shipbuilding yards in France and Finland. 1

Local currency is 1,639.2 billion KRW, calculated based on 1 USD being equal to 1,120 KRW. 2 Local currency is 25.9 billion NOK, calculated based on 1 USD being equal to 8.4 NOK. 3 Aker group, 2006. Annual report. 4 EC report (2006). Case No COMP/M.4104 -AKER YARDS /CHANTIERS DEL'ATLANTIQUE. 5 Korean News article from Money Today (September 1st, 2010).

STX Shipbuilding was an affiliate of STX Group, a rising Korean Chaebol, a type of organization that is well known for a centralized mechanism of coordination and control and a management style of top-down decision-making (Yoo and Lee, 1987, Maman, 2002). CEO Mr. Kang, the founder of STX Group, had been building STX Group since 2001, when he had acquired Ssayong Heavy Industries, where he was once an employee. He emphasized speedy operation as he expressed concern that lagging meant losing to the competition. He also had shown a bold vision for cruise-ship building since 2005, when STX became a conglomerate, escaping the title of the fast follower as a latecomer. A competitive advantage was needed against the top three shipbuilders. Upon hearing the news that the Aker Yards had been placed on the M&A market, Mr. Kang created a Task Force (TF) team for the M&A that consisted of three key executives. 5 They recognized the deal would be an opportunity to replace the lack of internal R&D for cruise ship building. The firm predicted if the firm were to invest internal R&D, it would take more than five years to enter the cruise shipbuilding segment. It also expected to create synergy by combining an efficient production system and engineering from Aker Yards. Consequently, Mr. Kang almost decided to make the deal in August 2007, five months after the Aker Group’s sale announcement. Mr. Kang and the executives showed self-confidence in the M&A deal because of several successful domestic M&A experiences, but the deal with Aker Group was a first cross-border M&A.

Deal and integration process STX acquired a 39.2% share (511 million USD, 11.5 USD per share 6 ) of Aker Yards, which was owned by Akers Group, in October 2007. After building an amicable relationship with shareholders and investigating risk, the firm gradually acquired the remains of Aker Yards’ ownerships and in January 2009, finally merged. STX raised funds from STX Shipbuilding (equity 179 million USD, debt 446 million USD7) and STX Engine (equity 89 million USD8), which are STX’s affiliates, and invested 714 million USD9 during the first acquisition stage. The firm invested approximately 1.8 billion USD 10 to acquire total ownership (see Figure 1 and Figure 2)11. In November 2008, Aker Yards was renamed STX Europe, which encompassed STX Finland, STX Offshore and Specialized Vessels (OSV) and STX France (see Figure 2). Three shipyards, in Helsinki, Rauma, and Turku, were affiliated with STX Finland, and only the CAT shipyard was affiliated with STX France. The Turku and CAT shipyards were the primary source of revenue for 6

Local currency is 4.3 billion NOK, 97 NOK per share. Local currency is equity 200 billion KRW, debt 500 billion KRW. 8 Local currency is 100 billion KRW. 9 Local currency is 800 billion KRW. 10 Local currency is 2,000 billion KRW. 11 STX internal report, “Understanding the M&A deal with Norwegian Aker Yards” / Korean Investors Service, “About Aker Yards ASA M&A by STX Shipbuilding.” 7

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cruise shipbuilding. After 100% ownership of STX Europe was acquired, STX Europe was delisted from the Oslo Exchange in February 2009. In 2010, STX OSV (a subsidiary of STX Europe) was relisted for an initial public offering of up to 570 million USD on the Singapore Exchange. A Korean CEO was assigned to STX Europe in Norway, and a few members were dispatched to STX Finland. They were only involved in management, not engineering. STX could not acquire the entirety of STX France because Aker Group initially owned only 75% of CAT, and Alstom still owned the remaining stock. However, in June 2008, the French government desired to invest 33% of STX France including the 25% of Alstom (see Figure 2). STX agreed to continue STX France’s operations in the military defense industry. The agreement caused an implicit barrier to integrating the firm, and nobody was dispatched to STX France. Thus, in light of the firm’s strategic goal to engage in cruise shipbuilding and create a stakeholding structure, we analyze the learning activities related to cruise shipbuilding in the context of STX Shipbuilding and the Turku shipyard of STX Finland.

Consequences STX failed to create synergistic value from the M&A deal for five years after STX Group acquired Aker Yards. Contrary to the firm’s initial intent, it failed to acquire technology in the field of cruise shipbuilding. The firm’s learning team identified the problematic factors in inbound technology during the learning process. However,

Figure 1. M&A deal and integration process

Figure 2. Structure of STX Europe's shareholding after the d

modification of the learning strategy was not implemented. The firm was not able to resolve the standalone problem of modifying its learning strategy. Cooperation between industries is required, and STX did not have enough experience to increase change in the field of the Korean shipbuilding industry. For one year after the 2010 delivery of Allure of the Seas (a sister ship to Oasis of the Seas), STX Finland’s Turku shipyard suffered without cruise shipbuilding work. The first cruise shipbuilding contract after the M&A was made in September 2011. The Turku shipyard also lost an order from Royal Caribbean International (RCI) for third, fourth and fifth ships in the Oasis of the Seas series to STX France since 2012, even though the STX Finland had maintained a close relationship with RCI. The Finnish government also attempted to attract RCI with a financing packaged in 2012, but RCI did not contract with STX Finland’s Turku shipyard. Concurrently, the STX Group suffered greatly from a financial liquidity problem resulting from its aggressive M&A deal, although the entire shipping and shipbuilding industry was depressed by the 2008 global financial crisis. Finally, the STX Group underwent a debt restructuring in 2001. In 2013, STX decided to reduce expenditures by closing STX Finland’s Rauma shipyard. Accordingly, all STX’s affiliates were dissolved, with some being sold to the other firm. STX OSV sold 51% to Fincantieri, and STX Europe sold Turku shipyard to Meyer Werft, which took a 70% stake while the Finnish government took a 30% stake. Fincantieri also decided to take a 66.6% stake of STX France. The STX Group virtually disappeared because it failed to resolve its 2013 bankruptcy.

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4. Case analysis

4.1. Differences in dominant knowledge in the pre-merger phase STX’s knowledge and organizational structure   -

Focused on ship platform and standardized production process efficiency emphasized relatively explicit knowledge (standard ships) knowledge is accumulated in the firm Full shipyard mainly in-house R&D centralized organizational structure vertical integration of its affiliates

The shipbuilding industry is a labor, capital, and technology intensive industry engaged in international competition. The price of a single product is very high, so it is not possible to adopt a process of continuous mass production. Thus, shipbuilders find their own ways to reduce uncertainty and risks of typical mass production. STX Shipbuilding adopted the “platform and standardized modularity strategy.” Its main product portfolio included oil tankers, bulk carriers and containers. In a general contract for these types of ships, a preliminary design is suggested by a shipbuilder and several ships with the same specifications are ordered in a series. The first ordered ship is called the mother ship or prototype, and the remaining ships are called sister ships. This ordering type allows a shipbuilder to lower overall prices by reducing the average cost per ship and shortening building time. The core issue in production is the development of the standardized platform and modular components for each ship and size. The firm emphasized “standardization” to all employees. The firm attempted to standardize most production skills and place them in documents; even the number of standardization measures was one of the firm’s key performance indicators. Therefore, the “platform” of a ship type is a core resource. All information about the platform and standardized components were registered in the firm’s ERP system, and when a similar project is contracted, the information is applied to all the project’s production processes. The firm’s designers were taught to modify drawings from the system for each project, and all basic drawings were produced by the STX designer. This strategy enabled the firm to shorten its design and production time and obtain flexibility in production by increasing the dry dock (a place where ships are built) circulation rate. In this strategy, the firm’s R&D activity concentrated on the production process instead of innovative design. STX Shipbuilding boasted several efficient dock operation systems (such as SLS12, ROSE13 and a unique floating dock system) and its unique innovative ERP 12

Skid Launching System

system (called PI system, abbreviated Poseidon Innovation), which was developed by its in-house Research & Development (R&D) organization. STX Shipbuilding aimed to be a “full shipyard (Held, 2010)”, which is the best way to obtain flexibility of production by integrating all activities in procurement and installation, along with R&D and design, in its yards. Thus, the firms concentrated on operating in-house suppliers. It had 51 firms that were in-house suppliers, representing more than 80% of the firm’s production labor in 2007. In-house suppliers’ period of residence was adjusted by the status of the firm’s entire order book, not by project unit. “STX standard” was shared with the in-house suppliers through an ERP system, which was a core coordination method. STX Shipbuilding was vertically integrated with other affiliates of STX Corporation to achieve both backward integration (marine diesel engines equipment and components by STX Enpaco and STX Engine) and forward integration (Shipping by STX Pan Ocean) in the maritime industry. STX Corporation had been restructured based on a diesel engine firm (Ssangyong Heavy Industries) in 2001, and the firm acquired a shipbuilding firm (Daedong Shipbuilding) and was renamed STX Shipbuilding in 2002. Finally, STX Corporation acquired a shipping firm (Pan Ocean shipping) in 2004. Thus, the firm established a competitive advantage by having a stable order book and supply of core components from its affiliates and inhouse suppliers. Aker Yards’ knowledge and organizational structure   -

Focused on an innovative customized prototype ship and flexible production process coordination and flexibility emphasized relatively tacit knowledge knowledge is distributed in the network Assembly shipyard R&D primarily in supply chains decentralized organizational structure horizontal integration of external suppliers

Cruise ship construction was Aker Yards’ main business segment. A cruise ship, as a high-end product, represents highly complex technology. As shown below, the business has several characteristics. (a) New prototypes rather than sister ships A cruise ship is highly customized and is limited to produce the number of sister ships in a series. Although cost can be saved per ship by producing sister ships in a series, shipbuilders and ship owners have instead attempted to develop a new prototype. They weight the cost of being obsolete and losing end users. Developing a new conceptualized prototype requires innovative activity for each project. Thus, standardization of 13

Rendezvous On the Sea for Erection

10

innovation is practically impossible. (b) Strong and complex links with subcontractors Frequent prototype development, the high complexity of the cruise ship and the high degree of customization cause cruise shipyards to broadly and deeply depend on subcontractors throughout the process, including concept design discussion and R&D. Therefore, a high level of innovation capability is required for all the players in the value chain network. (c) Close relationship between a shipyard (supplier) and a ship owner (customer) Cruise ship owners, such as MSC, RCCL, and Carnival have preferred shipyards, e.g., RCCL ordered its new cruise ships primarily from Aker Yard in Turku (four out of six)14. Aker Yards in Turku Finland was a 270-yearold shipbuilder and occupied 30% of the global cruise and ferry market. The Turku yard received attention because of its largest cruise ships, “Oasis of the Seas” (equivalent to more than three football fields), which began construction in 2006, breaking the record of “Freedom of the Seas,” which was also delivered by the yard. Its record of “the first” and “the largest” is not rare; the Turku yard is also responsible for the first cruise ship with all outside cabins, the first diesel-electric cruise ship, the first pod-propulsion cruise ship, and the first

cruise ships with indoor atrium promenades15. However, all of the innovative performance came not only from R&D shipbuilders but also from R&D collaboration with suppliers, which accounted for more than half of all R&D. Almost 75% of the product’s value comes from its suppliers (Held, 2010). In other words, the firm’s biggest competitive advantage resulted from its network with suppliers and its ability to coordinate that network. The firm created value from assembling a steel structure and integrating external suppliers in the production process based on skills in project management, supply chain management, and logistics. Aker Yards aimed to be an “assembly shipyard” (Held, 2010) by supplying and installing various components from external subcontractors. The firm adjusted the number of workers in its yard according to its project workload, usually ranging from 2,500-5,000 workers, with a peak of 8,000 workers (Chun, 2014). In “Oasis of the Seas” project, 32 firms participated in the basic design and engineering phase and produced approximately 3,000 basic drawings. To complete the drawings, each component firm had been provided with approximately 30,000 drawings (Held, 2010). In summary, Aker Yards secured flexible production, which is a core issue in shipbuilding, from its strong network with suppliers.

Table 2. Summary of the heterogeneity between the two firms

Acquiring firm-STX

Target firm-Aker

Firm main location

South Korea

Europe (Finland/ France)

Shipyard type

Full shipyard

Assembly shipyard

Major products

Bulk-carrier, Container, LNG carrier

Cruise & Ferry, Off-shore service vessel

The level of value added

Low & medium

High

The complexity of core technology

Low & medium

High

R&D implementation

In-house R&D department

Joint venture for R&D

Innovation focus

Production process

Product innovation

Product design

Standard platform design (modification for each project)

Production style

Manufactured by in-house suppliers

Prototype design (new conceptualization for each project) Manufactured by external turnkey suppliers

Organizational structure for innovation

Centralized

Decentralized

Value chain

Vertical integrated

Distributed to supply chain network

Position of core knowledge

In products

In networks

Core knowledge

Integrated manufacturing process

Network coordination

Tacitness of core knowledge

Low

High

14

EC report (2008). Case No COMP/M.4104 - AKER YARDS / CHANTIERS DE L'ATLANTIQUE.

15

http://www.meyerturku.fi/en/meyerturku_com/shipyard/building_in novative_products/innovative_designs/innovative_designs.jsp.

11

4.2. Learning process in the post-merger phase Target contents: in-bound technology absorption STX sought to absorb in-bound cruise technology and attempted to learn Aker Yard’s core knowledge quickly. In August 2007, when due diligence on the deal was nearly concluded, STX planned to organize a new division (“Division for cruise engineering design”) to learn the technology of cruise shipbuilding. In the early business stage, STX had a plan to dispatch engineering employees to Aker Yards to learn core knowledge. The division was only for learning. The M&A management team was not organized; instead, a new Korean CEO of STX Europe was sent from STX in Korea as soon as Aker Yards was renamed STX Europe. In 2009, two years after forming the new division, a Korean senior manager, who was a director of the division, was sent to the Turku yards of STX Finland. That manager was only involved in management, not engineering.

Prior experience: nearly no prior experience All the members of the new learning team were newcomers to STX, and it took a year to organize. Senior team managers came from other Korean shipbuilding firms, including SHI, DSME, and HHI. Senior managers started to work in October 2007. Juniors were recruited for the division, and there were three recruitments, from October 2007 to October 2008. The division started with approximately fifteen members, and in October 2008, when the division was at its largest, the number of members was approximately sixty-five. It consisted of one executive, three team managers, two managers and approximately sixty junior members. The new division consisted of three teams, including a basic engineering team, a system engineering and outfitting team, and an interior design team. Careful attention was paid to compose the interior design team and linked to the design part in STX Construction, because a portion of the interior of the cruise ship was 80% of the production process, unlike other standard ships. Most of STX’s learning activity tended to focus on the interior part of the cruise ship16. STX Shipbuilding had never built a cruise ship or even a ferry, which is less complex than a cruise ship. Most of the employees were junior and first had to obtain a basic knowledge of shipbuilding. Only one junior manager had experience and that was less than two years: he had participated in a cruise ship construction project of Fincantieri in Italy as a member of a cruise interior design firm. Exceptionally, two senior managers from SHI had accumulated knowledge about cruise ships through R&D and had experience constructing a ferry. Most members lacked not only knowledge of cruise shipbuilding but also basic engineering knowledge related to general shipbuilding.

16

Interview with Mr. Kim, one of the division’s senior managers.

Approach: centralized top-down approach STX implemented the M&A with a radical movement and a top-down decision process. All the organizational change occurred following Mr. Kang’s bold vision for cruise shipbuilding in Korea. He involved himself in planning the division. Thus, the division was in Seoul, near STX Corporation far from the R&D division of STX Shipbuilding in Changwon, which is in Southeast Korea. The new organization belonged to STX Shipbuilding, but it was governed by STX Corporation, which de facto meant Mr. Kang, the CEO of STX Corporation. Shortly after STX acquired Aker Yard, STX changed the name to STX Europe to show that the firm had become an affiliate of STX Group. A new Korean CEO from STX was assigned to STX Europe as soon as the deal was completed.

Integration speed: aimed at rapid integration In the seven months after the Aker Group’s announcement, STX signed a contract to acquire a 39.2% share of Aker Yards. STX also announced a plan to quickly acquire all remaining stakes. As soon as the first deal was completed, they prepared a learning team to send to Finland. However, this aggressive movement became a threat to Europe’s cruise shipbuilding industry. They asked the European Commission (EC) to conduct an antitrust investigation. Worse yet, the second-largest shareholder of Aker Yards counterattacked during the investigation. Nevertheless, STX overcame all resistance. In November 2008, the firm achieved 100% ownership of Aker Yard. STX acquired free access to STX Europe (except for STX France because of the French government’s opposition). Thus, all technological interaction occurred at the shipyards in STX Finland, especially Turku shipyard, which is a main cruise shipbuilding yard.

Communication: insufficient interaction Interactive communication was impeded by deficient prior knowledge and geographical distance. First, the new organization needed to compensate for its lack of prior knowledge. To address this gap and to enhance its internal R&D capability, the learning team participated an R&D project supported by the Korean government when the team was organized in 2007. The team did not overcome the geographical distance. The plan to dispatch a learning team to the Turku shipyard was canceled because of the European shipbuilding industry’s hostile attitude in the early business stages. It was difficult to have a regular meeting with the engineering team at STX Finland because the firms were geographically distant from each other. STX Finland gradually adopted a more open attitude. The senior manager and several team members first visited the STX Finland Turku shipyard for a few days in February 2009. The visit was requested by the Seoul learning team and a Korean executive dispatched to STX Finland. A second visit, by two Korean engineers, occurred in April 2010, but no collaboration between STX

12

and STX Finland was not initiated until 2012. Limitations on learning were revealed from the first visit. The division sought to acquire basic engineering skills, but Turku shipyard did not possess the required engineering skills. Senior engineers in the shipyard were experts in project management. Mr. Kim, who was one of the managers of the division and had experience, described his experience during the first visit. “The Finnish shipyard utilized a place for assembling still blocks and installation of components from external suppliers. All engineering and design skills are distributed to numerous independent engineering firms outside the shipyard. That is the difference between European shipyards and Korean shipyards. We overlooked that point.”

Closer observation was available during the second visit, and the visiting team looked inside of all the shipyard’s facilities, even its design office. Mr. Kim stated that he requested some drawings of the Oasis of the Seas and the Finnish managers were not hostile, but they looked him strangely. “I requested the final assigned fire protection plan from them. And they (Finnish managers in Turku shipyards) show me two cabinets and then said, ‘these are all fire protection plans.’ It was too vast a store of drawings to take. If we were to take all drawings, I questioned whether the drawings could help us. Most of the drawings are designed from other subcontractors.”

Asian shipbuilders’ potential entry into the cruise shipbuilding market based on its historical experience of losing leadership in the merchant vessel segment to Japan and South Korea. They also have worried that the Korean shipbuilding industry had the great competitive advantage of support from the Korean government17. In addition, the fact that STX had been involved in bidding to build a new cruise ship for Saga Lines since autumn 2007 triggered resistance to the deal. As a result, after the acquisition of a 39.2% share was complete, the deal was investigated by the EC for whether the deal resulted in seriously unfair competition in the shipbuilding market, including commercial ships and cruise ships18. In May 2008, the investigation concluded that the proposed deal does not raise serious doubts about its compatibility with the common market in the market of cruise ship construction. However, in the defense process, STX had no choice but to abandon the Saga project and to cover up the existence of the new R&D division for cruise ships to eliminate suspicion. The name of the division was a “division for cruise engineering design” early on, but was changed to an R&D division in Seoul during the EC investigation. The plan to move the team to Finland floundered. The STX-Aker Yards case is analyzed using the suggested framework, and the results are shown in Figure 7.

5. Framework expansion However, modification of the learning strategy was not implemented. If they set an additional target knowledge for supply management skills, it would have been useless without the support of Korean shipbuilding industry. Cooperation and capabilities of the industries are required, and Korean suppliers were unprepared. Korean shipbuilding’s industrial environment, including the supply chain, had long been developed to be suitable for supplying components for a standard ship in a large Korean shipyard. If the firm built relationships with the European supply chain in other ways, the logistical costs of taking shipping components from Europe to Korea would have resulted in an increase in STX Shipbuilding’s ship prices. It takes a great deal of time and money to address these problems. STX Shipbuilding did not have enough experience or power to create change in the Korean shipbuilding industry, and it did not have enough funding power, because STX Group had suffered from financial liquidity problems since 2011.

Sociocultural resistance Some in Europe’s marine industry opposed this M&A, worrying that it could be a threat to move the cruise shipbuilding segment to South Korea. The European shipbuilding industry is aware of the critical situation of 17

Korea Maritime Institute, http://www.kmi.re.kr/. EC report (2008). Case No COMP/M.4956- STX/ AKER YARDS. 19 All case description and analysis of the M&A of MELCO is sourced from two studies; One is “Japanese innovation strategy and the acquisition of UK IT firms (PhD thesis)” by Minshall (1997) and the 18

We apply the proposed framework to a secondary case. A successful cross-border M&A case between Japanese Mitsubishi Electric Corporation (MELCO) and British firm Apricot from Minshall and Garnsey (1999) was chosen for secondary data analysis. This will enable us to see whether the suggested framework can be extended beyond our case and achieve theoretical generalization. MELCO in Japan acquired Apricot in the UK19 MELCO, the acquiring firm, was an affiliate of the Mitsubishi Group. The majority of its customers were its affiliates, purchasing its heavy electrical machines. MELCO had been once a PC manufacturer as an OEM supplier, but lost its market share when industry standardization changed. It was also difficult to obtain customers for PC, unlike other customers in heavy industry. The firm had turned into a supplier of PC components, such as DRAM and monitors. At the end of the 1980s and into the early 1990s, MELCO predicted the international computer industry’s shift to open system-based computing and a new industrial standardization because IBM, which was a dominant PC manufacturer, presented a new product based on a new technology, Micro-Channel Architecture (MCA). other is “Building production competence and enhancing organisational capabilities through acquisition: the case of Mitsubishi Electric by Minshall & Garnsey (1999).

13

Figure 3. Comparison of two M&A cases (left: failed case - STX / right: succeed case - MELCO) based the theoretical framework

14

MELCO recognized this development as an opportunity to re-enter and dominate the new international market. However, despite its prior experience in PC market, it had not only terminated its technological development for PC full packages but also lacked experience in the international market. An acquired firm, Apricot had been founded as a computer service provider and entered the PC hardware market in 1975. “Apricot” branded PCs had once sold well. Globalization was inevitable for survival in the PC market, but Apricot’s hardware division did not have sufficient manufacturing capacity for the international PC market. Apricot decided to sell its hardware division, seeking a new partner’s investment. In May 1990, MELCO acquired 100% of Apricot’s hardware division. Though some within MELCO believed that the purpose of the purchase was merely to acquire external technology, MELCO had two

strategic motivations for the deal. The firms desired to move to open system-based computing and to learn a flexible management style to adjust rapidly to market change. Approach and integration process20 MELCO implemented a “hands-off approach” as a learning strategy. The firm did not know exactly how to address the British Apricot because the M&A deal was MELCO’s first attempt to acquire foreign ownership. Thus, MELCO decided to retain Apricot’s autonomy in most of its business. MELCO also attempted to leverage the strong “Apricot” brand name, which had been well known in North America, Europe, and Australia, as an intangible resource. The firm dispatched eight Japanese permanent employees as “cultural translators,” not “spies in the camp.”

Table 3. Comparison between STX’s and MELCO’s M&A cases

STX-Aker

MELCO-Apricot

O

O

O

O

Initial purpose of acquisition

Acquisition of technology

Acquisition of technology and management skill

Purpose of learning in early integration process

Acquisition of technology

Identifying differences

The time of recognizing the difference

Post-merger

Pre-merger / Post-merger

Intended payback period

Benefits in short-term

Benefits in long-term

Changing the acquired firm’s name post-merger

O

X

Prior experience in the intended product market

X

O

First international acquisition: Asian firm acquired European firm in same industry Differences in core knowledge and organization structure

20

Formation of a new organization for new product development The time the new organization for the product was formed within the acquired firms

O

O

As soon as the M&A contract was signed

Six years later

Dispatching executives from the acquiring firm

O

X

Dispatching executives from the acquired firm

X

O

Dispatching employees from the acquiring firm

X

O

M&A consequence

Failure

Success

The entire case description and analysis of the M&A of MELCO is sourced from two studies. One is “Japanese innovation strategy and the acquisition of UK IT firms (PhD thesis),” by Minshall (1997), and the other is “Building production

competence and enhancing organisational capabilities through acquisition: the case of Mitsubishi Electric” by Minshall & Garnsey (1999).

15

Learning process21 Joint product development was attempted in which many problems occurred because of each path dependency. However, this attempt was a good opportunity to recognize the firms’ differences. The firms identified what they need to learn from each other and learned how to discuss the problems of the joint R&D experience. Although MELCO obtained access to Apricot’s MCA technology, the market did not change, as the firm had predicted. Nevertheless, Apricot’s flexible development skills helped MELCO adapt to the emergent UNIXbased system. MELCO acquired new knowledge not only about technology but also about external relationship management skills and a flexible organizational routine. Apricot had been a small player in the PC market and had relied on its external network. The firm had developed organizational capabilities for problem-solving and latest technology scanning routines to increase its innovative performance. Apricot was also flexible about changing product specifications, whereas MELCO had been very cautious about changing specifications because of its experience in heavy industry. MELCO attempted to learn openness and flexibility in management skills and routines to compete more effectively in the new “digital industry.” Accordingly, MELCO reflected the skills and routines of its organizational change in Japan. The firm organized system groups that integrated production and overseas marketing. It formed an alliance to compete in a rapidly changing environment. In 1996, six years later of acquisition, MELCO organized a PC division within MELCO and appointed Apricot’s former managing director as President of the new division.

Comparison with the STX-Aker case   

Similar status in the pre-merger phase Different identification of knowledge differences between the acquired and the acquiring firm Different approach to learning

First, the heterogeneity of knowledge in the pre-merger phase is identified in both cases. The acquiring firms had formed centralized organizations, and they were more hierarchically integrated with its affiliates than the acquired firms. The firms concentrated on standardization for the efficiency of manufacturing or marketing their product. In contrast, the acquired firms had been highly dependent on the external network, and they had a competitive advantage in coordinating the network. Thus, they are flexible enough to adjust and modify in response to various project and technology changes. However, as shown in Table 4, MELCO identified the gap, but STX did not. MELCO succeeds in addressing its heterogeneity with Apricot, but STX failed to address 21

All the case descriptions and analysis about MELCO’s M&A of MELCO are sourced from two studies. One is “Japanese innovation strategy and the acquisition of UK IT firms (PhD thesis),” by Minshall (1997), and the other is “Building production competence

this issue and consequently lost overall value. The firms had different target contents and approaches to the learning process. MELCO targeted both knowledge of technology and management systems and the firm’s attempt to address cultural differences because of a lack of prior experience in the UK. Thus, MELCO chose a “hands-off approach” and took considerable time to observe the exact differences even in the post-merger phase. In contrast, STX only targeted in-bound technology absorption to build cruise ships in Korea, so the firm missed learning about management systems. STX’s initial approach was radical, which was a topdown decision based on its CEO’s strong willingness. This aggressive approach prompted resistance from local industry communities, which interfered with the firm’s strategic movement.

6. Conclusion By comparing two cross-border M&A cases, this paper attempted to investigate why a learning process in M&A succeeds or fails. Using multiple theoretical perspectives, a two-phase framework was proposed. We suggested that in the pre-merger phase, knowledge relatedness must be identified by investigating a target firm’s products and organizational structures; in the postmerger phase, various internal factors, such as target contents and prior experience, must be considered to establish an appropriate learning strategy, integration speed and communication, all of which are affected by external factors such as sociocultural differences. The results from our secondary case suggest the importance of an appropriate learning strategy. Once heterogeneity of knowledge and organizational structure is identified, smooth and hands-off integration rather than rapid top-down integration may be favored, particularly in cross-border M&As, in which sociocultural factors will have a significant impact. This paper has various implications, but it also suffers from research limitations. This paper is still developing, so its theoretical background must be further elaborated to strengthen the applicability of its framework. An indepth literature review will be critical for this paper because it is based on a single case and attempts to engage in theoretical generalization by expanding its framework to the secondary case.

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